Microsoft seen in settlement pact

WilliamL. Watts

WASHINGTON (CBS.MW) -- Microsoft and the Bush administration reportedly have reached a tentative agreement to settle the historic antitrust case against the software giant.

The 18 states that are also trying the case were reviewing terms of the deal Wednesday evening, the Associated Press reported, citing unnamed sources familiar with the talks.

Details of the prospective settlement were closely guarded, and some language was still being worked out even between Microsoft
MSFT, -1.81%
and the Justice Department.

Under the settlement, Microsoft would agree to some restrictions for the next five years. It could be extended two more years if the company is found in violation of the terms, with a three-person panel monitoring its compliance.

The attorneys general from the states that sued Microsoft for antitrust violations were weighing whether to sign onto the deal, the sources said. The AP reported Charles James, chief of the Justice Department's antitrust division, disclosed the agreement to the states on Wednesday and said Microsoft also would accept the terms, the sources said, speaking only on condition of anonymity.

Silent in Redmond

Representatives with the government and at Microsoft's headquarters in Redmond, Wash., declined comment.

California's attorney general said through a spokesman that the states were considering their next move. "We have representatives in DC working with others in an effort to comply with all of the court's instructions to reach a settlement," said spokesman Nathan Barankin.

The Washington Post, citing sources familiar with the negotiations, reported that the proposed consent decree would force Microsoft to give computer makers more power over how software applications are carried and displayed as part of the Windows operating system.

The proposal would also establish rules regarding how much of the company's computer code would be required to be given to outside software firms. It would also establish a technical committee that would respond to disputes about those disclosures, the newspaper said.

Whether the states would go along with the Bush administration's proposals, however, has long been a question fraught with potential problems.

A settlement was nearly reached in the spring of 2000 under efforts mediated by U.S. Circuit Court Judge Richard Posner, who later indicated that the states spoiled the accord at the last minute.

Unified in public

State prosecutors were said to be unhappy last summer, when James announced that the government had decided to take the threat of a breakup of Microsoft off the table, saying it would instead base its call for remedies on a set of interim sanctions proposed by U.S. District Judge Thomas Penfield Jackson, the original trial judge.

At the time, state prosecutors said they were satisfied with the strategy, but California Attorney General Bill Lockyer and New York Attorney General Eliot Spitzer also said, in a joint statement, that they were ready, "if necessary to protect the public, [to] press for remedies that go beyond those requested by the Department of Justice."

Last week, the states seemed to lay the groundwork by hiring high-profile Washington lawyer Brendan Sullivan to represent them should the case move into a remedy phase.

Publicly, federal and state officials have expressed unity. But state prosecutors have expressed concerns privately that U.S. antitrust chief James could give away too much during the mediated settlement talks.

Earlier this month, U.S. District Judge Colleen Kollar-Kotelly appointed Eric D. Green, a Boston University law professor and professional mediator, to supervise settlement negotiations. If the parties don't settle by this Friday's deadline, a court-ordered remedy process would begin. See earlier story.

In particular, the states have urged the government to take a close look at Microsoft's controversial Windows XP operating system upgrade, which was launched last week, before asking a federal judge for a remedy to the company's antitrust violations. See related story.

Already, one industry trade group is charging that the Bush administration has caved in by agreeing to weak remedies.

"The Justice Department isn't settling this case, it is selling out consumers, competition, and all those who want a vibrant, innovative high-tech industry contributing strength to our economy," Ed Black, president of the Computer and Communications Industry Association, said in a statement. The association has long railed against Microsoft and had endorsed a breakup of the company.

Breakup plan off the table

Last month, the Justice Department announced that it would no longer seek a breakup of the software giant, but would "model" its remedy proposal on a set of interim restrictions proposed last summer by Judge Jackson. See earlier story.

The remedy portion of the case was assigned to Kollar-Kotelly by the U.S. Court of Appeals, which upheld a ruling by Jackson that Microsoft illegally abused its Windows monopoly on the market for PC operating systems. That charge was the centerpiece of the government case.

The appeals court, however, overturned Jackson's order to split the company in two, finding that Jackson failed to hold hearings needed to decide a remedy. It also disqualified Jackson from further proceedings, citing the appearance of bias as a result of comments to reporters during the trial.

The appellate court also overturned a finding that Microsoft illegally tied its Internet Explorer browser to Windows and said the lower court using a stricter legal standard could revisit the claim. The government subsequently dropped the tying claim, which was seen as a minor part of the case.

Justice Department officials have said the decision to drop pursuit of a breakup was designed to streamline the case and avoid a protracted battle over a remedy in order to speed relief to consumers. Officials insisted that the decision didn't represent a concession to the software giant.

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